Summary
Appeal from the circuit court of Carroll county.
HoN. E. Y. HughstoN, Special Judge.
Suit by the Bank of Winona against the Merchants and Farmers Bank. From a judgment for plaintiff defendant appeals.
The facts are fully stated in the opinion of the court.
The court erred in overruling the motion to strike out the replication to appellant’s second plea, which plea alleged appellee’s claim to the notes sued on was merely that of a holder of said notes, as collateral for pre-exist-ing indebtedness, with no other consideration. The replication did not traverse the allegation of mere security for the pre-existing indebtedness, which defense was' thus denied and overruled, erroneously. First National Bank v.. Strauss, 66 Miss. 779; Robertshaw v. Britton, 74 Miss. 873; Thigpen v. M. G. R. R. Co., 3 G-eo. 351-2; Smith v. Elder, 14 S. & M. 104.
The court erred in excluding the testimony of appellant and in granting a peremptory instruction for appel-lee. First National Bank v. Strauss, 66 Miss. 779; Dodge v. Gutrer, 58 So. 208; Netterville & Boyd v. Stevens & Pillett, 2 How. 645;'Smith v. Prestidge et al., 6 S. & M. 484.
Ogden’s Negotiable Instruments, sec. 126, page 113, says that a bona fide■ holder for value without notice is: “A holder in due course is a holder who has taken the instrument under the following conditions: First, that it is complete and regular upon its face; second, that he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; third, that he took it in good faith and for value; and fourth, that at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”
“Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he, or some person under whom he claims, acquired the title as holder in due course. ”
The Negotiable Instrument Law provides: ‘ ‘ The title of a person who negotiates an instrument is defective within the meaning of this act when he obtains the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.”
“To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.”
Bolles on the Modern Law of Banking (1907) at page 241, says: “But a pledgee to whom a certificate is endorsed in blank with the right to sell, if necessary to reimburse himself, has no right to repledge it; consequently, the new pledgee acquires no right thereto, for the form of the original pledge should put him on inquiry. Nor can the original contract be destroyed by any usage, authorizing the pledgee to repledge the stock. Still weaker, if possible, is the defense in such a transaction after the original loan lias been fully repaid, though the security remains in the original pledgee’s possession.” 31 Cyc. Law & Pro., p. 850, par. 2.
‘ Mr. Colby in his excellent work on Replevin (1890) in chapter IX, states the rule of law to be that, one dealing with a bailee is the same as if dealing with an agent and must inform himself as to the authority of the bailee to contract. He is at his peril to know the extent the original bailor has given the bailee to deal with the property. He says: “A purchaser from an agent without authority, even though the purchaser pay full value and acts in good faith, carries no title, and the owner may sustain replevin. ’ ’ And in section 209, the author says: “Where an agent sold the goods to his own creditor, thus paying his own debt, the title of the owner is not thereby divested, and he may bring replevin against even a subsequent purchaser without notice.”
Steams on the Law of Suretyship (1903), treating of blank endorsement, as by Blackston of the Boatmen notes, or by Blackston of these notes pledged, announces the law to be: “In other words, if the parties make no definite contract between themselves, the law will supply the deficiency, and make it for them. But, if the parties in fact agree upon terms mutually satisfactory to themselves, different from those implied by law, they should be permitted to stand upon those terms, as being the real contract, although not expressed in writing, rather than force upon them by implication, a contract that they did not intend.” 66 Penn. 481.
Bolles’ Modern Law of Banking, volume 1, chapter XI, pages 392 and 395, cites decisions from the supreme courts of Alabama, Kentucky, Federal Reports, United States, New Jersey, Massachusetts, Vermont, Louisiana, Maine, and Washington, to sustain the proposition that: “When two banks had mutual dealings for two years, knowledge of which the directors could have obtained by examining the books, they must be presumed to have had knowledge of the transaction.”
‘ ‘ There are two kinds of agreements which control the operation of bills and notes, which are designated as mem-oranda on the face or hack of the instrument, collateral or independent agreements. The advantage of having the memorandum on the bill or note is that it will furnish-actual or constructive notice to all subsequent holders (such as, “as delivered to you and now in your possession” in this case) whereby it will control the operation or character of the instrument, whereas a collateral agreement can only control the operation or character of the instrument as to those parties who have received actual notice of its existence.” Ogden on Negotiable Instruments (1909), Sec. 55. We have shown that defendant had actual knowledge, or could have had by ordinary law-imposed inquiry and is chargeable with it independently of the significant notation on the back of one of the notes. In Sec. 236 (1907), the same author says: “But if the assignee knows the facts, so that the note cannot be said to have been assigned bona fide, the maker may set up such facts in defense. And, if a note' is given without consideration, and is endorsed by the payee without consideration, the maker will not, it is held, be precluded from showing these facts by way of defense to a suit brought by. the-assignee.” And in the next section he lays down the rule to be, “So, where assignees occupy the same position as the payee would, had he sued, the rule.permitting a defense of failure of consideration, as between the original parties, would apply.” At the end of the same section the author states that “the want of consideration, or the failure of consideration for negotiable paper between the parties to it, constitutes no defense against it in the hands of a bona fide endorsee or holder without notice or knowledge of any facts tending to invalidate the note.” Transpose this reading without changing the meaning and we have, the endorsee or holder with notice or knowledge of any facts tending to invalidate the note, is mala fide 'and cannot stand.
For a circumstance showing the necessity for inquiry, in a South Dakota case, reported in 29 L. R. A. (N. S.) (1908) 351, a note on page 356, says that, “The offer for sale by a stranger residing outside of the state, to an individual, of a note, endorsed to him without recourse, which had been procured from the maker by fraud, at a place other than that of the maker’s residence, is a circumstance calculated to arouse suspicion in the mind of a prudent person, so that his purchase without inquiry may destroy his bona fides and prevent his enforcing the note against the maker.” See, also, McKnight v. Parsons,, 22 L. R. A. (N. S.), 718, 721; 63 Am. Dec. 633; Iowa, Arkansas, New York, Delaware, Georgia, Alabama, Vermont, Tennessee, Connecticut, Massachusetts, South Dakota, Minnesota; 11 Wall. (U. S.); 104 U. S.; 2 Ency. Evid., 524, note 48; Am. & Eng. Ann. Cases, 660; 128 U. S. 590; 153 and 200 Ind; Beach v. Nevins, 162 Fed. 129, 18 L. R. A. (N. S.) 288.
Knowledge of the officers of a bank is imputed to the bank. That of the president always. 133 U. S. 566; 110 IT. S. 7-15; 130 IT. S. 267; 3 Cyc. 122, citing 101 IT. S. ■320; 1 Pet. 299; 15 Wall. 165; 10 Wall. 604; 186 IT. S. 342, reaffirmed in 205 U. S. 527; 145 IT. S. 435-443; 150 IT. S. 1063; 147 IT. S. 59; 94 U. S.-429; 150 U. S. 231; How. IT. S. 343; 141 IT. S. 50-71; Harlmess v. Bussell, 118 IT. S. 663,
The specification. of a particular consideration in a promissory note plain or sealed, may be varied by good evidence and the real consideration shown. Palen v. James, 45 Miss. 129, Meyer v. Casey, 57 Miss. 615, Coolc v. Blaclcbourn, 57 Miss. 689.
After all, aside from set-offs and defenses before notice our laws differ very little from the Law Merchant. The statute in force at the time of the negotiations now in question reads as follows:
“Promissory notes, other writings, and the vendor’s lien assignable; defenses. All promissory notes, and other writings for the payment of money or other things, may be assigned by indorsement, whether the same be payable to order or assigns or-not, and the assignee or indorsee may maintain such action thereon, in his own name, as the assignor or indorser could have maintained; and in all actions on such assigned promissory note, bill of exchange, or other writing for the payment of money or other thing, the defendant shall be allowed the benefit of all want of lawful consideration, failure of consideration, payments, discounts and set-offs made, had or pos-, sessed against the same previous to notice of assignment in the same manner as though the suit had been brought by the payee; and the assignee or indorsee of any such instrument may maintain an action against the person or persons who may have indorsed the same, as in the case of inland bills of exchange, but when any debt shall be lost by the negligence or default of an assignee or indorsee, the assignor shall not be liable on the assignment or in-dorsement. The assignee of a claim for the purchase-money of land may enforce the vendor’s lien as the vendor could.” Miss. Code, 1906, sec. 4001, page 1100.
Oct., 1913] BaNk v. BaNk. 106 Miss.] Brief for appellant.
It will be seen from decisions of our supreme court, e'sr pecially in Brown v. Banlt, 62 Miss. 754, that in a case like this, the “Law Merchant” is the general rule where the note or bill is made payable to bearer. It is defenseless against an innocent holder, in good faith for value and without notice, a bona fide holder. But, the same de-defense is allowed against a holder Who has not all of the adjectives to his credit. Like Caesar would have, his wife be, he must be “above suspicion.” As herein above shown, information that even tends, or a duty slightly neglected in important transactions, robs him of his pretended virtues.
In a varied state of the case, the following authorities sustain the position under cover of which the plaintiff seeks to take shelter, to wit: That a bona fide holder, for value paid, without notice of defenses, of a bill or note or written obligation is protected by the law merchant, save as to those exceptions named in our ante-commercial statute. See Meggett v. Baum, 52 Miss. 22; Ethridge v. Gallager,-55 Miss. 642; Hawkins v. Neal, 60 Miss. 256; Brown v. Bank, 62 Miss. 754; Boswell v. Thig-pen, 75 Miss. 308. However, Robertshaw v. Britton, 74 Miss. 873, is in line with defendant’s contention here.
There can be no difference in prohibition by an express statute, such as dealing in future contracts, and one provided by express decisions as to such fraudulent contracts. The protection is precisely the same against “a contract in violation of public policy, or a positive rule of law, or against good morals, and will not be enforced, even at a suit of an innocent transferee, although it be evidenced by a promissory note payable to bearer. ’ ’ This covers our case. Gray v. Robinson, 95 Miss. 1 (5); Mont-joy v. Bank, 76 Miss. 402 (406).
“Incurable infirmity infected the contract and it was in no way helped by transfer, however innocent may have been the transferee, or what value was paid.” Deans v. Robertson, 64 Miss. 195; Hoyle v. Shirley, 94 Miss. 466; Virden v. Murphy, 78 Miss. 515; Simmons v. Atkinson, 69 Miss. 762.
“No precise definition of fraud is attempted to be given, lest knavish ingenuity should evade it.” Silence may become a fraud. Stratton v. Bryant, 35 Miss. 261 (275). The question of fraud must be determined by the facts of each particular case.
“A note signed by an agent of a corporation authorized generally to give notes on its behalf is' enforceable by a bona fide holder thereof, though the officer or agent exceeded his authority in executing the note in question. The authority of an officer to sign notes on behalf of a corporation need not appear in the by-laws, nor be expressly given by a vote of the trustees or stock-holders.” See Merchants National Bank v. Citizens Gas Light Company, 38 Ám. St. Rep. 453.
“A bank is answerable for the acts of its cashier done within the apparent, though not within the real scope of his agency.” See Havens v. Bank of 'T arbor a, 95 Am. State'Rep. 627; and at page 630 of said authority we find the following: ‘ ‘-Whenever one of the two innocent parties must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it.” See Lickbarrow v. Mason, 2 Term Rep. 70. And also we find the following at said page: “It is well said by Lord Holt in Hearn v. Nichols, 1 Salk 289, “For seeing somebody must be a loser by this deceit, it is more reason that he that employs and puts a trust and confidence in the deceiver should be a loser than a stranger.” And also, “Where one of two persons must suffer loss by the fraud or misconduct of a third person,, he who first reposed a confidence, or by his negligent conduct made it possible for the loss to occur, must bear the loss.” Wilmington, etc., R. R. Co. v. Kitchen, 91 N. C. 39.
His acts within the general business and usage of the bank will bind it in favor of- third persons .without notice. See 22 Wend. 348; Lloyd v. West Br. Bank, 15 Pa. St. 172; Mostum v. Mass. Natl. Bank, 1 Holmes, 396.
“The bona fide holder for value and without notice of a promissory note payable to bearer, is not affected by any equities between the original parties thereto.” See Mercian & Sears v. Haley Cotton, 34 Miss. 64.
In a suit by a holder of a note payable to bearer,, no defense existing between the original parties can be set up in bar of a recovery, unless it be shown that the plaintiff is the holder of the note without valuable consideration, or with notice, actual or constructive of the equities existing between the original parties. The holder of a promissory note is prima facie a bona fide holder and for value.” See Thomas v. Winstead v. Francis Davis, Admr., 40 Miss. 785.
“The holder of a bill of exchange payable to drawer and by him indorsed in blank.is prima facie a bona fide holder for value.” See Gillespie, Admr., v. Oil Mill, 76 Miss. 406.
“A note payable to the maker’s order and by him indorsed in blank before delivery is in effect payable to bearer, and therefore, not being subject to our anti-commercial statute, section 3503, Code 1892, no defense existing between the original parties can be set up as against a holder who acquires the note in good faith for value before maturity.” See Bank v. Wofford, 71 Miss. 711.
“A promissory note or bond payable to bearer is by the terms of the instrument payable to whomsoever may lawfully hold it, and is negotiable at common law, the title passing by mere delivery. At common law a bona fide holder by assignment for a valuable consideration of a bond or note payable to bearer, is not affected by any equity existing between the maker or obligor and the person to whom he originally delivered it; and the rule is the same in this state.” See Craig v. City of Vicksburg, 31 Miss. 216.
“A bona fide holder for value of a lost bond is entitled to recover the full amount of principal and interest due thereon, notwithstanding he may have had a suspicion and good grounds for suspicion of defect in the title and been guilty of gross negligence in respect to it at the time of the transfer. His title will not be defeated unless he was also guilty of bad faith. ’ ’ See N. O. J. & G. N. R. v. Miss. College, 47 Miss. 560.
“Note transferable by delivery, if not overdue or apparently dishonored, may, in the ordinary course of business in good faith and for valuable consideration, be transferred so as to vest valid title in the transferee, although stolen from the true owner or deposited with the transferor for some special purpose, and without authority to transfer it.” See Wheeler v. Guild et al., 32 Am. Dec. 231.
“Bona fide, holder for value of note indorsed in blank and fraudulently transferred by a bailee, is entitled to hold the same against the true owner and to recover the amount thereof.” See Caruth v. Thompson, 63 Am. Dec. 559.
“Commercial paper in the hands of a bona fide purchaser for value, before maturity, is not subject to defense which would be available ag’ainst the original payee, unless it is shown that such purchaser had. notice of such defenses.” See Merchants Natl. Bank of LaFayette Ind. v. Norris et al., 51 So. 15, 57 So. 72, 8 Cyc., pp. 56, 57; Walters v. Tielkemeyer, 72 Mo. App. 371; United States v. Bead, 2 Crunch C. C. (U. S.), 159, 27 Fed. Cas., No. 16125.
Knowledge acquired by a bank president while solely acting for himself in his own interest is not notice to the bank. See Seaverns v. Presbyterian Hospital, 173 Ill. 414.
Notice to an officer personally interested is not notice to the corporation. See Victor & Company v. National Bank, 15 Utah, 391; 10 Cyc. 1063, par. 3; Davenport First National Bank v. Gifford, 47 Iowa, 575; First National Bank of Highstown v. Christopher, 29 Am. Rep. 262; Wickersham v.' Chicago Zinc Co., 26 Am. Rep. 784; Inerarity v. Merchants Natl. Bank, 52 Am. Rep. 710; Merchants National Bank of Kansas City v. Lovitt, 35 Am. St. Rep. 770; 5 Cyc. 461, par. C.; 2 Thompson on Cor-' porations (2 Ed.), p. 750, section 1665.
We call the court’s attention to the fact that the principle is now well established, that neither a suspicion of' defect of title, knowledge of circumstances which would excite such suspicion in the mind of a prudent man or put him on inquiry, nor even gross negligence on the part of the taker will affect his right unless the circumstances or suspicions are so cogent and obvious, that to remain passive would amount to bad faith. In other words, the question is now one of good or bad faith, and not one of diligence or negligence, except so far as the want of caution is material as bearing on the question of good faith, and suspicion, or knowledge of facts which fall short of had faith do not amount to notice. See 7 Cyc. 944 (B), 945, 946.
Counsel for appellant hank cites case of Bobertshaw v. Britton, 74 Miss. 873, as being in line with defendant’s contention in the case now before the court. We fail to see how that case has any bearing upon the case at bar. The note in Bobertshaw v. Britton, was made payable to order and, of course, was subject to defenses that could be set up under section 3503 of the Code of 1892. The ■notes involved in the suit now before the court are made payable to bearer. Of course, if the notes involved in the case now before the court were payable to order, then the defenses authorized by the statute might be set up, but we have no such case before this court.
The case of Montjoy v. Bank, 76 Miss. 402, and the case of Deans v. Bobertson, 64 Miss. 195, cited by counsel for appellant, were with reference to notes and contracts made in violation of public policy, or of a positive rule of law, and are not like the case now before the court and have no application whatever to this case. It was no violation of the law for the cashier of the appellant bank to issue the notes in controversy, nor was it against any public policy or good morals.
The case of Virden v. Murphy, 78 Miss. 515, cited by counsel for appellant, was another one of those cases where the contract or note was issued in violation of a positive law, and is not like the case at bar.
. The case of Simmons v. Atkinson, 69 Miss. 862, cited by counsel for appellant, the note in that case had been changed and made to read different from what it originally read, and by reason of the change the court held that the maker thereof was not liable. The notes involved in the suit now before the court are not claimed by appellant to be forged, or to have been in any way changed. In fact, the notes in controversy in the case now at bar are just as they came from the hands of the cashier of appellant bank. So the case of Simmons■ v. Atkinson, is not in any way applicable to the case at bar.
The notes in controversy being payable to bearer, the bnrden rested npon the appellant to show that the Bank of Winona were not bona fide holders of said notes for valne without notice, and we respectfully. submit that they have wholly failed in all the evidence that they introduced to meet the said legal requirements. The Bank of Winona is under the law prima facie holders of said notes for value without notice of any defenses that might have existed to said notes, and it was not incumbent upon the bank to show that it has no notice of any of the defenses set up by appellant, or that the bank acquired said notes for value. And so the court, under all the evidence that was produced on the trial of this case, rightly held that the Bank of Winona was entitled to recover upon the notes sued on, and we respectfully submit that the judgment which was entered below should be affirmed.
Syllabus and headnotes are prepared by the reporter or publisher, not the court, and are not part of the opinion.
